Globalization – A Win-Win Possibility?

May 1, 2006

M any big thinkers throughout history have shaped ideas that form the foundation of
globalization. The bottom line for many steeped in economics is that unimpaired global free trade
will create an absolute economic nirvana. For them, international trade means international peace.
Through global specialization, total costs are lower around the world, and global economic
efficiencies are maximized. By ridding the world of tariffs and quotas, the free market’s invisible
hand will determine how much and where corn, sugar, cotton and wheat should be grown; where to
build airplanes and autos; and where medical tests will be evaluated.

Global standards of living will be equalized at a higher level than is found in today’s most
impoverished sections of the globe, and the highest will be lowered — but think: greater global
good. Rising standards of living will increase consumerism, which leads to the free flow of ideas,
which will grease the skids of free thought, which ultimately will lead to democracy.

The interconnectedness of the global economic framework will make it impenetrable to
nationalistic fanaticism because there will be no way to be an economic island in a global economy.

So, why cry foul?

Opinions vary, but one of the most straightforward is that while global growth continues and
gross domestic products rise, everything will be fine aside from the readjustments that occur
around the globe regarding entire employment and asset sectors — like textiles. Don’t worry, lower
labor rates for the displaced will be offset by lower-cost consumer goods as those workers do their
part for the greater global good.

The downside comes with the first hiccups that chill global growth. An oil, health or
political crisis — or any unexpected interruption to the underlying linkages at the foundation of
the global economy — could set off an economic storm the likes of which we have never seen.

As the supposed benefits of globalization raise the total economic benefit, the cost and risk
move beyond anything one nation has ever tried to control. Nation-based economic tools will become
obsolete, and the demand for greater economic safety nets comes at a time of reductions for many
such plans.

On a larger scale, can countries really suspend their national self-interest for the right to
become part of the integrated global economic fabric? Think of China’s announced 15-percent
increase in defense spending this year after rising 13 percent last year — or the US activities in
the Middle East or the knowns and unknowns throughout the Middle East.

Industries like textiles, autos, steel, agriculture and energy will all face the question of
being essential to an economic superpower. Retaining them through market management, such as tariff
and government programs, flies in the face of global free trade. National security, economic
sovereignty and the hunger for transnational corporate growth will continue to test the
eventualities of globalization and the realization that truly global free trade has some unintended
consequences. In the meantime, practice those old-time hiccup cures — they might be necessary
sooner than economists think.